TAX2 2015 Edition SolMan

(1)

SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 2015 Edition

By: TABAG & GARCIA

CHAPTER 1 – SUCCESSION & TRANSFER TAXES

TRUE OR FALSE

1. TRUE 6. TRUE 11. FALSE 16. TRUE

2. TRUE 7. FALSE 12. TRUE 17. FALSE

3. FALSE* 8. FALSE 13. TRUE 18. TRUE

4. FALSE 9. TRUE 14. TRUE 19. TRUE

5. FALSE 10. FALSE 15. FALSE 20. TRUE

*The taxpayer for estate tax purposes is the estate as a juridical person. MULTIPLE CHOICE 1. D 12. C 23. D 34. D 45. B 2. A 13. C 24. B 35. B 46. C 3. D 14. B 25. D 36. B 47. D 4. C 15. D 26. D 37. D 48. D 5. C 16. C 27. B 38. B 49. A 6. A 17. B 28. D 39. D 50. B 7. B 18. D 29. A 40. D 51. A 8. A 19. C 30. D 41. B 52. D** 9. B 20. B 31. B 42. D 53. D 10. A 21. B 32. A 43. B 54. D 11. D 22. B 33. D 44. B 55. B

**Inheritance and repudiation takes effect upon death of the decedent

(2)

PROBLEM SOLVING

(P2.1) (1) P19,300,000 (2) P19,300,000 (3) P11,800,000 (4) P14,300,000

Citizen/ Resident (# 1 & 2) NRA with R (# 3) NRA w/o R (# 4) Family home in the Philippines P8,000,000 P8,000,000 P8,000,000 Parcel land of with vacation house in Malaysia 5,000,000

Farm land in the Philippines 3,000,000 3,000,000 3,000,000

Shares of stock of a domestic corporation deposited in a bank safety deposit box in Malaysia

2,000,000 2,000,000

Shares of stock of a foreign corporation the entire business of which is in the Philippines, deposited in a bank safety deposit box in Malaysia

500,000 500,000

Receivable from a friend who has no property whatsoever 300,000 300,000 300,000 Receivables under insurance policies:

 Life insurance policy, taken by the decedent on his own

life, with his estate as revocable beneficiary 200,000 200,000 200,000  Life insurance policy, taken by the decedent, with his

daughter as revocable beneficiary 300,000 300,000 300,000  Life insurance policy, taken by the decedent on his own

life, with his son as irrevocable beneficiary - -

- Life insurance (group) taken by the employer of the

decedent, with the estate as revocable beneficiary - - - Property insurance, for a loss of property 50,000 50,000 50,000  Accident insurance, for injury sustained 50,000 50,000 50,000

TOTAL GROSS ESTATE P19,300,000 P11,800,000 P14,300,000

(P2.2)

To Juan P25,000,000

To Pedro 18,000,000

To Maria 15,000,000

To Sisa 20,000,000

Total Gross Estate P78,000,000

(P2.3)

Shares of stock (Frozen Co.)

[(P8M+3M)/800,000sh x 100,000 shares P1,375,000 Shares of stock (Divergent Co..)

100,000 shares x P15** 1,500,000 Shares of stock (Lenovo Co..)

100,000 shares x P12 1,200,000 Total Gross Estate P4,075,000

***Mean value shall be used only if the quotation price at the date of death is not determinable (RR 2-2003)

(P2.4)

(1)P230,0000; (2)P1,100,000; (3)P0; (4)P5,000,000; (5)P1M + [1M x (1M x 10% x 1.5)] = P1,150,000

MODIFIED IDENTIFICATION

EXERCISE A 1. Included 6. Excluded 2. Included 7. Excluded * 3. Excluded 8. Included ** 4. Included 9. Excluded

(3)

5. Excluded 10. Included*** *Designated by the prior decedent

**Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in the gross estate before deducting the same from the gross estate.

*** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem clearly states that not more than 30% were used for administrative purposes. However, even if not more than 30% of the bequests were used for administrative purposes, the tax code still require these items to be included first in the gross estate before deducting the same for estate tax purposes.

EXERCISE B EXERCISE C 1. P0; valid sale 2. P0; valid sale 3. P0; valid sale 4. P4,000,000 5. P6,000,000 1. P10M 2. P20M 3. P5M 4. P10M 5. P0 TRUE OR FALSE

1. TRUE 6. FALSE 11. FALSE 16. TRUE

2. TRUE 7. FALSE 12. TRUE 17. TRUE

3. TRUE 8. FALSE 13. TRUE 18. FALSE

4. FALSE 9. TRUE 14. FALSE 19. TRUE

5. TRUE 10. TRUE 15. FALSE 20. FALSE

MULTIPLE CHOICE 1. A 16. D 31. C 46. D 61. A 2. B 17. C 32. B 47. C 62. A 3. D 18. B 33. A 48. C 63. C 4. B 19. D 34. B 49. D 64. D 5. C 20. A 35. B 50. D 65. B 6. C 21. D 36. D 51. D 66. A 7. A 22. A 37. C 52. C 67. C 8. B 23. B 38. B 53. C 68. C 9. A 24. A 39. C 54. C 69. D 10. A 25. C 40. C 55. B 70. D 11. A 26. C 41. C 56. D 71. D 12. B 27. C 42. B 57. C 72. A 13. D 28. D 43. C 58. C 73. D 14. A 29. B 44. B 59. A 74. D 15. C 30. D 45. C 60. A 75. B

Supporting Computations (Multiple Choice): (22).

Bank deposit in the foreign branch of a domestic bank P500,000 Bank deposit in Makati branch of a foreign bank 300,000 Shares of stock issued by a domestic corporation

(certificate kept in Canada)

1,000,000

Franchise exercised in Manila 800,000

Receivable, debtor from Mindanao 200,000

Total Exclusion from the gross estate P2,800,000 (23).

(4)

House and lot, family home in Quezon City P1,500,000 Bank deposit in Makati branch of a foreign bank 300,000 Shares of stock issued by a domestic corporation

(certificate kept in Canada)

1,000,000

Franchise exercised in Manila 800,000

Receivable, debtor from Mindanao 200,000

Total Inclusion from the gross estate P3,800,000 (25).

Shares of stocks, domestic corp. (certificate kept in UK)

P250,000 Shares of stocks, domestic corp.

(certificate kept in Phils.)

100,000 Franchise exercised in the Phils. 200,000 Receivables, debtor is from Phils. 50,000 Intangibles subject to reciprocity P600,000 (26).

Land & building, Philippines P2,000,000

House and lot, Philippines 3,500,000

Shares of stocks, domestic corp. (certificate kept in UK) 250,000 Shares of stocks, domestic corp. (certificate kept in Phils.) 100,000 Franchise exercised in the Phils. 200,000 Receivables, debtor is from Phils. 50,000

Gross Estate P6,100,000

(32). (P12M/100,000) x 1,000 shares = P120,000

(33). P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share (34). P110 x 1,000 shares = P120,000

(35). (P140 + P80/2) x 1,000 shares = P110,000 (43).

Consideration received

FMV upon transfer FMV upon death Gross Estate Land P1,500,000 P1,500,000 P2,000,000 None. Valid sale Shares of stock 100,000 50,000 150,000 None. Valid sale

Vintage car 50,000 80,000 100,000 P50,000

Painting 250,000 400,000 500,000 250,000

INCLUSION IN THE GROSS ESTATE P300,000

CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE

PROBLEM SOLVING

(P3.1)

(Funeral Expenses) Case A: P150,000 Case B: P200,000 Case C: P150,000 Case D: P150,000

(P3.2) P0

Mourning clothing (donated by the decedent’s employer)

(5)

-Telecommunication charges paid by the friends -Cost of burial plot, coffin, interment fees and other funeral charges paid by an insurance company

-DEDUCTIBLE FUNERAL EXPENSE

-nil-(P3.3) P183,500 computed as follows:

Embalming charges P15,000

Burial apparel of the decedent 3,500

Cost of coffin 85,000

Mourning apparel of the surviving spouse during the burial 2,000 Mourning apparel of the minor child (P12,000/6) 2,000

Snacks and drinks during the wake 12,500

Honoraria of priest for daily masses before burial 4,000 Telecommunication charges to inform relatives 10,000 Charges for death notice published in a newspaper 1,500 Cost of video footage of the burial and interment 12,000 Funeral car service during interment 4,000 Honorarium of priest who celebrated the mass during interment 2,000

Cost of tombstone 30,000

ACTUAL FUNERAL EXPENSE P183,500

Vs. Limit (P5% of P10M) 500,000

ALLOWABLE FUNERAL EXPENSE P183,500

NOTE: Hospital bills for two months of confinement before decedent’s death should be charged to “medical expenses”

(P3.4)

(Claim Against Insolvent Persons)

Case A: P100,000

Case B: P333,333 computed as follows:

Receivable P500,000

Collectible portion (400/1,200) x 500,000 (166,667) Deductible claim (Uncollectible portion) P333,333 Case C: P0. Debtor is not insolvent

CaseD: P0. Debtor is not insolvent

Total Assets P1,200,000

Taxes payable (Gov’t is a priority creditor) (800,000) Assets after deducting unpaid taxes P400,000

Receivable (CAIP) P500,000

Collectible (400/800) x 500,000 (250,000) Deductible Claim against Insolvent Persons P250,000

(P3.5) P133,333 computed as follows:

Debtor’s Assets P400,000

Taxes payable (Gov’t is a priority creditor) (200,000) Assets after deducting unpaid taxes P200,000

Receivable (CAIP) P200,000

Collectible (200/600) x 200,000 (66,667) Deductible Claim against Insolvent Persons P133,333

(6)

(P3.6) P2,097,000 computed as follows:

Ordinary Deductions:

Claim against insolvent person (500,000-400,000) P100,000 Unpaid taxes on the estate before death 150,000

Unpaid mortgage on the estate 200,000

Funeral expenses Actual = P182,000 + 37,500 = P219,500 Limit = P5M x 5% = P250,000 Maximum = P200,000 200,000 Judicial expenses 100,000

Unpaid loans arising from debt instruments (notarized) 125,000 Unpaid loans arising from debt instruments (not notarized). The

debt instrument was issued by a financial institution not requiring notarizations for debt instruments issued

75,000

Casualty loss 65,000

Special Deductions:

Standard deduction 1,000,000

Medical expenses 82,000

Total Allowable deduction from the gross estate P2,097,000

(P3.7)

Question 1: P217,500 Question 2: P217,500

Same answer with question #1. Whether or not the estate was settled judicially is irrelevant in the determination of allowable deduction for judicial expenses.

Solution:

Expenditures incurred for the collection of assets and payment of debts P100,000 Attorney’s fees (1/2 were incurred after six months) P40,000 x 1/2 20,000

Accountant’s fees 25,000

Executor’s commission 15,000

Appraiser’s fees 2,500

Court fees 18,000

Cost of preserving and distributing the estate 15,000 Cost of storing or maintaining the property of the estate 12,000 Brokerage fees for selling property of the estate 10,000

Total allowable judicial expenses P217,500

(P3.8) P265,000 computed as follows:

To the executor, for time and effort in executing the will P30,000 To a lawyer, for legal advice in carrying out the will 80,000 To an appraiser, for establishing property values 70,000 To an accountant, for estate tax return preparation 30,000

Court fees 18,000

Cost of preserving and distributing the estate 15,000 Cost of storing or maintaining the property of the estate 12,000 Brokerage fees for selling property of the estate 10,000 DEDUCTIBLE JUDICIAL EXPENSES P265,00

(7)

0

(P3.9) P2,500,000 computed as follows:

Loss due to shipwreck, two (2) months after the decedent’s death. P500,000 Robbery loss, seven (7) months after the decedent’s death. The decedent’s

executor was allowed by the Bureau of Internal Revenue to extend the filing (within the period allowed by the Tax Code) of estate tax return due to a meritorious reason

2,000,000

Allowable Deduction P2,500,000

(P3.10) P262,500 computed as follows:

Value to take P937,500

1st_{Deduction: Mortgage paid} _(187,500)

Initial basis P750,000

2nd_{Deduction: Proportionate deduction}

(750/4,500) x 562,500 (93,750) Final Basis P656,250 x Vanishing rate 40% Vanishing Deduction P262,500

(P3.11)

STANDARD DEDUCTION Case A: P1,000,000 Case B: P1,000,000 Case C: P1,000,000 Case D: P0 Case E: P0

(P3.12)

MEDICAL EXPENSES Case A: P500,000 Case B: P500,000 Case C: P150,000 Case D: P500,000 Case E: P0

(P3.13)

FAMILY HOME Case A: P1,000,000 Case B: P500,000 Case C: P0 Case D: P500,000 Case E: P600,000 Case F: P750,000; [ (1M/2) + (500,000/2)]

(P3.14) P1,550,000 computed as follows:

Funeral expenses Actual P300,000 – 120,000 = P180,000 Limit = P3M x 5% = P150,000 P150,000 Standard deduction 1,000,000 Medical expenses 400,000

Total amount deductible from the gross estate P1,550,00 0

(8)

(P3.15)

Question 1: P2,430,000 (Decedent: Resident Citizen)

Question 2: P2,430,000 (Decedent: Resident Alien) (same computation with Q#1). Domestic shares of 2,000 shares inherited 6 years ago P800,000 House and lot, family home, located in Europe, inherited 2 years ago 2,000,000 Jewelry items, in the Philippines at the time of death 400,000 Jewelry items kept in a vault abroad 200,000 Bank deposit in a Philippine branch of a U.S. bank 500,000

Transfer for Public Use 250,000

GROSS ESTATE P4,150,000

ORDINARY DEDUCTIONS:

Funeral expenses, Philippines (max.) 200,000

Judicial expenses, abroad 100,000

Judicial expenses, Philippines 50,000

Claims against the estate 120,000

Transfer for Public Use 250,000

Vanishing deductions - (720,000) SPECIAL DEDUCTIONS Standard Deduction 1,000,000 Family Home Medical Expenses RA 4917 - (1,000,000)

NET TAXABLE ESTATE P2,430,000

(P3.16) Question 1: P2,757,500 computed as follows: GROSS ESTATE:

TFPU P300,000

House & lot in Makati, F. Home 1,500,000 Personal properties 1,500,000

Farm lot 825,000

Claim against an insolvent debtor 225,000

Transfer in contemplation of death 1,500,000 P5,850,000 DEDUCTIONS:

Funeral expenses 200,000

Judicial expenses 67,500

TFPU 300,000

CAIP 225,0000

Unpaid mortgage on the farm lot 75,000

Standard 1,000,000

F.Home 1,000,000 (3,092,500)

TAXABLE NET ESTATE P2,757,50

0 Question 2: P2,672,330 computed as follows:

GROSS ESTATE:

TFPU P300,000

House & lot in Makati, F. Home 1,500,000 Personal properties 1,500,000

Farm lot 825,000

Claim against an insolvent debtor 225,000

Transfer in contemplation of death 1,500,000 P5,850,000 DEDUCTIONS:

(9)

Funeral expenses 200,000

TFPU 300,000

CAIP 225,0000

Unpaid mortgage on the farm lot 75,000 VANISHING DEDUCTIONS** (85,170)

Standard 1,000,000

F.Home 1,000,000 (3,177,670)

TAXABLE NET ESTATE P2,672,33

0

Value to Take P575,000

Less: Mortgage paid (150,000-75,000) (75,000)

Initial Basis P500,000

Less: Proportionate Deduction

(500/5,850 x P867,500 (74,145)

Final Basis P425,855

x Vanishing Deduction Rate 20% VANISHING DEDUCTION P85,170** (P3.17) Question 1: P426,000 computed as follows:

VTT Land P1,250,000 Mortgage paid (50,000) Initial Basis 1,200,000 2nd_Deduction 1,200/8,000 x 900,000* (135,000) Final Basis 1,065,000

x Vanishing Deduction Rate 40% Vanishing Deduction P426,000 *1,200+100-100600+300=P900,000

Question 2: P4,174,000 computed as follows:

GE P8,000,000 ELIT (600,000) TFU (300,000) VD (426,000) Stndrd (1,000,000) FHome (1,000,000) Med Exp (500,000) TNE P4,174,000 TRUE OR FALSE

1. TRUE 7. TRUE 13. FALSE 19. TRUE 25. TRUE

2. TRUE 8. TRUE 14. FALSE 20. TRUE 26. TRUE

3. TRUE 9. TRUE 15. TRUE 21. TRUE 27. FALSE

4. TRUE 10. FALSE 16. FALSE 22. FALSE 28. TRUE

5. TRUE 11. FALSE 17. TRUE 23. TRUE 29. FALSE

6. FALSE 12. FALSE 18. TRUE 24. TRUE 30. TRUE

(10)

1. C 11. C 21. A 31. C 41. C 2. D 12. B 22. A 32. A 42. A 3. D 13. A 23. B 33. C 43. A 4. C 14. A 24. B 34. B 44. C 5. B 15. A 25. B 35. B 45. D 6. B 16. D 26. C 36. D 46. A 7. D 17. D 27. A 37. A 47. A 8. C 18. C 28. C 38. D 48. A 9. A 19. D 29. D 39. D 49. B 10. B 20. P650,000 30. C 40. D 50. D

Supporting Computation (Multiple Choice): (6).

Mourning clothing of the decedent’s surviving spouse P1,500 Mourning clothing of the decedent’s dependent children 3,200 Expenses of the wake preceding the burial 40,000 Publication charges for death notices 5,000 Telecommunication expenses incurred in informing relatives of the

deceased

3,000

Cost of burial plot 20,000

Interment fees and charges 12,000

Expenses for the performance of the rites & ceremonies incident to interment

5,000

Actual Funeral Expenses P89,700

Limit: 5% of Gross Estate (P2M x 5%) P100,000

ALLOWED (Lower Amount) P89,700

(14.)

Real property tax for the year 2013 P100,000 Notarized interest bearing promissory note 100,000 Accrued interest on the promissory note at the time of death 20,000

Income tax due for 2013 200,000

Allowable deductions P420,000

(20).

Income tax from practice of profession - 2013 P300,000 Income tax from practice of profession for Jan.-June ‘14 100,000

Real property taxes for 2013 150,000

Business taxes for 2013 100,000

Deductible taxes P650,000

(37).

Value to take/Initial Basis P900,000

Mortgage paid (50,000) Initial basis 850,000 2nd_Deduction: (850/1,000 x P100,000**) (85,000) Final Basis P765,000 X Vanishing rate 40% VANISHING DEDUCTION P306,000 ** Mortgage P150,000 – 50,000

(11)

(49).

Shares, domestic corporation P500,000 Tangible personal property 1,500,000

Gross Estate 2,000,000 ELIT (500,000 x 2,000/2,500) (400,000) Taxable Estate P1,600,000 TAX DUE 1st_P500,000 _P15,000 In excess of P500,000 = (1,100,00 x 8%) 88,000

Estate Tax Due P103,000

(50).

Gross Estate (Tangible property Phils.) P6,000,000 ELIT (1,200,000 x 6,000/10,000,000) (720,000)

Taxable Estate P5,280,000

CHAPTER 4 – PROPERTY RELATIONS

PROBLEM SOLVING P4.1 ACP CPG 1. C E 2. C C 3. C E 4. C E 5. E E 6. C E 7. E E 8. C E 9. E E 10. E E

P4.2

Exclusive Common Total Land inherited during marriage P2,400,000

Other personal property owned before marriage P1,600,000 Other personal property acquired during marriage 500,000

Total P2,400,000 P2,100,000 P4,500,000

Deductions:

Funeral expenses (200,000)

Judicial expenses (100,000)

Vanishing deduction** (1,120,000) Net estate before special deduction and share of

the surviving spouse

P1,280,000 P1,800,000 P3,080,000

Standard deduction (1,000,000)

Medical expenses (500,000)

Share of the Surviving Spouse (1,800,000/2) (900,000)

NET TAXABLE ESTATE P680,000

VANISHING DEDUCTION**

(12)

Proportional Deduction (1,500/4,500 x P300,000) (100,000)

Final Basis P1,400,000

x Vanishing Deduction % 80%

Vanishing Deduction P1,120,000



Since the problem is silent as to the type of the marriage settlement but one of the requirements is to compute for “community property”, ACP should be used. The term “community” property is applicable to ACP.

P4.3

(a)P1,624,773 (b)P4,132,955 (c)P3,691,250 (d)P321,038

Exclusive Common Total

Exclusive properties P2,000,000

Conjugal properties* P5,000,000 P7,000,000

ELIT** (867,045)

Vanishing Deductions *** (175,227) Transfer for Public Use **** (200,000)

Net Estate P1,624,773 P4,132,955 P5,757,728

Share of the Surviving Spouse (4,132,955/2) (2,066,478)

Net Taxable Estate P3,691,250

1st_P2,000,000 _P135,000

In excess of P2,000,000 @ 11% 186,038

ESTATE TAX DUE P321,038

*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properties within the Philippines.

**ELIT:

Funeral expenses P200,000 Judicial expenses 800,000 Claim against the estate 1,725,000

TOTAL ELIT P2,725,000

X 7,000/22,000

ALLOWABLE ELIT P867,045

**VANISHING DEDUCTIONS:

Value to take P500,0 00

1st_{Deduction: Mortgage paid}

-Initial basis P500,000

(500/7,000) x 867,045 (61,932)

Final Basis P438,068

x Vanishing rate 40%

Vanishing Deduction P175,227

**** Since the properties were already classified as exclusive and common, it should be assumed that the exclusive properties were already inclusive of transfer for public use.

P4.4

(Decedent: Resident Citizen)

a) Vanishing deduction = P1,676,200

b) Net exclusive property of the decedent = P7,200,000 c) Net community property = P19,300,000

d) Net Taxable estate = P14,850,000 e) Estate tax due = P2,185,000

(13)

Exclusive Conjugal Total Exclusive properties P10,000,000 Ordinary Deductions: Conjugal properties 20,000,000 P30,000,000 Funeral expenses (200,000) (200,000) Judicial expenses (300,000) (300,000)

Claims against conjugal properties (200,000) (200,000) Claims against exclusive properties* (400,000) (400,000) Legacy-local government (Tr. for Public Use) ** (723,800) - (723,800)

VANISHING DEDUCTION*** (1,676,200) (1,676,200)

Net exclusive/conjugal P7,200,000 P19,300,000 P26,500,000 Special Deductions:

Amount received under RA4917 (1,500,000)

Share of the surviving spouse (P19.3M/2) (9,650,000)

ESTATE TAX DUE (Refer to the Tax Table) P2,185,000

*From the information provided in the problem, the amount of P400,000 as “claim against exclusive property” should pertain to the unpaid mortgage on the land inherited. Therefore, the present decedent paid P100,000 on the original amount of the mortgage (P500,000). This should be taken into consideration in computing the vanishing deduction. ** LEGACY AGAINST EXCLUSIVE PROPERTIES

Legacy means bequest or inheritance of personal properties. The deductible legacy/devised (bequests) under the tax code are:

 Transfer for “public use” (Rule: Include both in the “Gross Estate” as well as in the “Deductions from the Gross Estate) ; and

 Bequests to charitable institutions wherein not more than 30% of the bequest was used for administrative purposes (Rule: Same as transfer for public use)

TRANSFER FOR PUBLIC USE

Value to take P3,000,000

Mortgage Paid (refer to explanation above) (100,000)

Initial basis P2,900,000

(14)

x rate 60%

Vanishing Deduction*** P1,676,200

P4.5 (Decedent: Resident Alien) (a) Net Taxable estate = P3,570,000; (b)Estate tax due = P307,700

House and lot, USA * P2,000,000

Investment in stock, Philippines 800,000

Investment in stock, USA 1,000 000

Investment in bonds, USA 700,000

Cash in bank, Philippines 300,000

Cash on hand, Philippines 50,000

Accounts receivable (fully uncollectible) 200.000

Car, Philippines 800,000

Legacy in favor of Philippine National Red Cross** 50,000 Devise to Quezon City for children’s playground** 70,000

Funeral expenses P150,000

Unpaid Philippine income tax for income in 2011 120,000 Loss on December 31, 2012 due to theft 10,000 Legacy in favor of Philippine National Red Cross 50,000 Devise to Quezon City for children’s playground 70,000

Accounts receivable (fully uncollectible) *** 200,000 (900,000) Special Deductions:

Estate Tax Due (Refer to the Tax Table) P307,700



*Family home is not allowed as a deduction for single decedent

**To be deductible, the legacy/devise should be included first in the decedent’s gross estate ***Assume the debtor is an insolvent person.

P4.6

(Decedent: Resident Alien) a) Vanishing deduction = P441,463 b) Net Taxable estate = P3,200,000 c) Estate tax due = P386,739

Exclusive Conjugal Total

Land P3,000,000

House and Lot, furniture and appliances P5,000,000 Other tangible personal properties 1,200,000

Amount received under RA4917 1,000,000

Claims against insolvent persons 50,000 P10,250,000

Ordinary deductions:

(15)

Judicial expenses (100,000) Other claims against conjugal properties (500,000)

Claims against insolvent persons (50,000)

Unpaid mortgage** (350,000) VANISHING DEDUCTION* (441,463) Net exclusive/conjugal P2,208,537 P6,400,000 P8,608,537 Special deductions: Standard deduction (1,000,000) Medical expenses (120,000)

Share of the surviving spouse (3,200,000)

TAXABLE ESTATE P4,288,537

Value to take/Initial Basis*** P2,500,000 2nd Deduction: 2,500/10,250 x 1,200,000 (292,683)

x rate 20%

Vanishing Deduction* P441,463

** P700,000 – 350,000 = P350,000

***The amount paid on the mortgage should not be considered in computing the vanishing deduction because the amount pertains to a mortgage entered into by Pedro during his lifetime. To be deductible, the mortgage should have been assumed on the property at the time of inheritance.

TRUE OR FALSE

1. TRUE 6. FALSE 11. FALSE

2. TRUE 7. FALSE 12. TRUE

3. TRUE 8. TRUE 13. TRUE

4. FALSE 9. TRUE 14. FALSE

5. FALSE 10. FALSE 15. TRUE

MULTIPLE CHOICE 1. 7. 13. 19. 25. 2. 8. 14. 20. 26. 3. 9. 15. 21. 27. 4. 10. 16. 22. 28. 5. 11. 17. 23. 29. 6. 12. 18. 24. 30.

Supporting Computations (Multiple Choice) (No. 22 & 23)

Gross Estate: Exclusive Conjugal

Rest House in Batangas P2,500,000

Car 1,000,000

Commercial land 5,000,000

Income from the commercial land 500,000

Income from exclusive property of the spouse 200,000 Jewelry owned before the marriage 300,000

Other properties at the time of her death 1,000,000

(16)

(No. 24 & 25)

Gross Estate: Exclusive Common

Rest House in Batangas P2,500,000

Car 1,000,000

Commercial land 5,000,000

Income from the commercial land 500,000

Jewelry owned before the marriage 300,000

Other properties at the time of her death 1,000,000

Gross Estate P2,500,000 P7,800,000 (No. 26) Conjugal properties P200,000 Conjugal Deductions: Funeral expenses Actual = P45,000 Limit = (P500,000 + 200,000) x 5% = 35,000 (35,000) Judicial expenses (20,000)

Claim against the estate (45,000)

Net Conjugal properties P100,000

Divide 2

Share of the Surviving Spouse P50,000

(No. 27)

Real property, Philippines P4,000,000

Real property, USA 5,000,000

Judicial expenses (200,000 – 50,000) (150,000 Claim against insolvent persons (50,000)

Unpaid taxes (50,000)

Balance P8,550,000

Standard Deductions (1,000,000)

Medical expenses (max.allowed) (500,000) Family Home (P1,500,000/2) (750,000) Share of the surviving spouse (P8,550,000/2) (4,275,000)

(No. 28)

Conjugal real properties P5,000,000

(17)

Exclusive properties P2,500,000 Total P2,500,000 P6,500,000 P9,000,000 Ordinary Deductions: Funeral expenses Actual P300,000 x 25% = P75,000 Limit = 5% x P9M = P450,000 (75,000) Casualty losses (from excl.property) (100,000)

Miscellaneous deductions (P1M x 75%) (750,000) (825,000) Net P2,400,000 P5,675,000 P8,075,000 Special Deductions: Standard Deductions (1,000,000) Medical expenses (P500,000 x 50%) (250,00) Family Home (1,500,000/2) (750,000)

Share of the surviving spouse (5,675,000/2) (2,837,500)

(No. 29) ABSOLUTE COMMUNITY OF PROPERTY

Exclusive Common

Properties-Land P2,400,000

Other personal property owned before marriage 1,600,000 Other personal property acquired during marriage 500,000

Gross Estate P2,400,000 P2,100,000

Net conjugal before special deductions P1,800,000 Share of surviving spouse (P1,800,000/2) P900,000 (No. 30) CONJUGAL PARTNERSHIP OF GAINS

Properties-Land P2,400,000

Other personal property owned before marriage 1,600,000

Other personal property acquired during marriage**** P500,000

Gross Estate P4,000,000 P500,000 P4,500,000

Ordinary Deductions

Vanishing Deductions***** (1,120,000)

Net Estate Before Special Deductions P2,880,000 200,000 P3,080,000

Standard deductions (1,000,000)

Share of the surviving spouse (P200,000/2) (100,000)

Share of surviving spouse (P1,800,000/2) P1,480,000

****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common.

Value to take P1,500,0 00

1st_{Deduction: Mortgage paid}

-Initial basis P1,500,000

(1,500/4,500) x 300,000 (100,000)

x Vanishing rate 80%

(18)

CHAPTER 5 – ESTATE TAX CREDIT AND ESTATE TAX DISTRIBUTABLE

PROBLEM SOLVING

P5.1

(1)P200,000 (2)P0; not allowed

Estate Tax Due [P465,000 + (5M x 15%)] P1,215,000 Estate tax credit (4/10 x P1,215,000) vs P200,000 (200,000)

Estate tax payable P1,015,000

P5.2

Estate tax credit (67,500)

Estate tax payable after tax credit P67,500

Limit 1: Limit Actual Allowed

Canada: 500/2,000 x P135,000 P33,750 P150,000 P33,750

USA: 500/2,000 x P135,000 33,750 110,000 33,750

P67,500 Limit 2:

1,000/2,000 x P135,000 P67,500 260,000 67,500

ALLOWED TAX CREDIT P67,500

P5.3

 ASSUME: ESTATE TAX PAID U.S.A. = P250,000

(a) Net Taxable estate = P3,570,000; (b)Estate tax due after tax credit = P142,770 (c ) Net Distributable Estate = P4,427,230

House and lot, USA * P2,000,000

Investment in stock, Philippines 800,000

Investment in stock, USA 1,000 000

Investment in bonds, USA*** 700,000

Cash in bank, Philippines 300,000

Cash on hand, Philippines 50,000

Accounts receivable 200.000

Car, Philippines 800,000

Legacy in favor of Philippine National Red Cross** 50,000 Devise to Quezon City for children’s playground** 70,000

(19)

Accounts receivable (fully uncollectible) 200,000 (900,000) Special Deductions:

Estate Tax Credit

Limit: [(3,200/5,970) x 307,700 = P164,930 Actual: P250,000

(164,930)

ESTATE TAX DUE AFTER ESTATE TAX CREDIT P142,770

NOTE:*Family home is not allowed as a deduction for single decedent

**To be deductible, the legacy/devise should be included first in the decedent’s gross estate *** Considered as Estate “within”

TOTAL GROSS ESTATE (Refer above) P5,970,000

Accounts receivable (fully uncollectible) 200,000 (900,000) Special Deductions:

Standard deduction

-Medical expenses (500,000)

Estate Tax Due after tax Credit (142,770)

NET DISTRIBUTABLE ESTATE P4,427,230

P5.4

Real property, Philippines P4,000,000

Claim Against Insolvent Persons 50,000

Real property, USA 3,000,000

Real property, Japan 2,000,000

Net estate, Malaysia (1,000,000)

Total Gross Estate (common) P8,050,000

Funeral expenses (maximum) (200,000)

Judicial expenses (P200,000-100,000) (100,000) Claim against insolvent persons (50,000)

Net estate before special deductions P7,650,000

X (Share of the surviving spouse) 1/2

Net estate of the decedent in the conjugal properties P3,825,000

Standard Deduction (1,000,000)

Family Home (1,000,000)

Medical Expenses (500,000)

(20)

In excess of P500,000 @ 8% 66,000

ESTATE TAX DUE P81,000

Estate Tax Credit (None; No Estate Tax Payments abroad)

----ESTATE TAX PAYABLE P81,000

Total Gross Estate (common; as computed above) P8,050,000

Funeral expenses (actual) (300,000)

Judicial expenses (actual) (200,000)

Claim against insolvent persons (50,000)

Net estate before special deductions P7,450,000

X (Share of the surviving spouse) 1/2

Net estate of the decedent in the conjugal properties P3,725,000

Standard Deduction

---Family Home

---Medical Expenses (actual) (650,000)

Estate Tax (81,000)

NET DISTRIBUTABLE ESTATE P2,994,000

MULTIPLE CHOICE 1. B 8. A 15. A 22. C 29. C 2. C 9. D 16. C 23. A 30. D 3. D 10. A 17. C 24. C 31. A 4. C 11. D 18. A 25. D 32. B 5. C 12. D 19. D 26. C 6. C 13. A 20. A 27. A 7. C 14. D 21. C 28. B Supporting Computations: No.5

Estate tax due (for P4M) P355,000

Estate tax credit (3/4 x P355,000) vs P80,000 (80,000)

Estate tax payable P275,000

No. 6

Estate tax due (for P500,000) P55,000

Less: Estate tax credit (20,500)

Singapore: 300/1,000 x P55,000 P16,500 P30,000 P16,500

USA: 100/1,000 x P55,000 5,500 4,000 4,000

P20,500 Limit 2:

(21)

ALLOWED TAX CREDIT (LOWER AMOUNT) P20,500 No. 7

Gross Estate P10,000,000

Deductions (5,000,000)

Share of the surviving spouse (5,000,000 x 60% x 50%) (1,500,000)

Net taxable estate P3,500,000

Tax Due P300,000

Estate tax credit (2.8/3.5 x P300,000) vs P124,500 (124,500)

Net estate France = [(6M -2M) x 0.6 x 1/2] + (6M-2M) x 0.4 = P2,800,000 Net estate R.P. = [(4M-3M) x 0.6 x 1/2] + (4M-3M) x 0.4 = P700,000 No. 8

Estate tax due (for P500,000) P71,000

Less: Estate tax credit (41,417)

Japan: 300/1,200 x P71,000 P17,750 P20,000 P17,750

USA: Exclude for purposes of computing Limit 1 - -

-HK: 450/1,200 x P71,000 26,625 45,000 26,625

P44,375 Limit 2: (Include USA)

700/1,200 x P71,000 P41,417 65,000 41,417

ALLOWED TAX CREDIT (LOWER AMOUNT) P41,417

No. 9 and 10

Net Taxable Net Distributable

Property inherited P1,400,000 P1,400,000

Property acquired through own labor 3,600,000 3,600,000

Funeral expenses (200,000) (240,000)

Judicial expenses (200,000) (200,000)

Claims against the estate Notarized Not notarized (40,000) -(40,000) (20,000) Standard deduction (1,000,000)

-Net Taxable/Distributable estate P3,560,000 P4,500,000

CHAPTER 6 – DONOR’S TAX

PROBLEM SOLVING

P6.1

ITEM Q#1 Q#2 Q#3 Q#4 Q#5 A P800,000 P800,000 P800,000 P800,000 P800,000 B 3,000,000 3,000,000 3,000,000 C 250,000 250,000 250,000 250,000

(22)

D 100,000 100,000 100,000 - 100,000 E* 5,000,000 5,000,000 5,000,000 F 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 G 100,000 100,000 100,000 - 100,000 H 100,000 100,000 100,000 - -I 500,000 500,000 500,000 500,000 500,000 Land 1** - - - - -Land 2*** - - - - -Land 3**** 5,000,000 5,000,000 5,000,000 - -Car 200,000 200,000 200,000 200,000 200,000 GROSS GIFT P16,550,000 P16,550,000 P16,550,000 P3,000,000 P3,450,000

*The question is “gross gifts”, hence, disregard the mortgage.

**Sale of Land #1 is a transfer with insufficient consideration. However, unlike in Estate Taxation, Transfer with insufficient consideration for donor’s tax purposes is not taxable if the property donated is a real property classified as capital asset subject to capital gains tax.

*** Sale of Land # 2 is considered bonafide or valid sale.

****Sale of Land #3 is a transfer with insufficient consideration. Nonetheless, the sale is subject to donor’s tax because the property was not subjected to capital gains tax. Capital gains tax on real properties are applicable only on sale of real properties classified as capital assets located in the Philippines.

P6.2

ITEM Q#1 Q#2 A P4,500,00 P4,500,00 B 1,000,000 -C 1,500,000 -D 2,000,000 -E 3,000,000 3,000,000 F 500,000 -Car, Alabang 200,000 200,000 Car, Malaysia 200,000 -Land Cebu - -GROSS GIFT P12,900,000 P7,700,000

P6.3

1.P0 2.P5,000 3.P10,000 43,000

P6.4

Donation-Red Cross (exempt under a special law)* P100,000 Donation to Manila City Hall * 300,000 Mortgage on the land (400,000 x ¼) 100,000 Total deductions from the gross gifts P500,000

*Exempt donations which partake the nature of deductions and are, therefore , deductible from the gross gifts to arrive at taxable net gifts.

P6.5

Relative Stranger Cash to his son on account of marriage P50,000

(23)

-Jewelry to his auntie 46,000

Shoes and bags to his girlfriend 30,000

Books to the City of Makati 20,000

Second hand car to his first cousin 500,000

Brand new SUV to his second cousin (subject to revocation) - -Shares of stocks of a domestic corp. to his best friend 150,000

Car to his daughter (a donation mortis causa) -

-Forgiven a loan due from his brother(50,000-25,000) 25,000

Sports equipment to his brother in law 75,000

Parcel of land to the Philippine government for public use 1,000,000

Gross Gifts P621,000 P1,275,000

NOTE:

 Cash to PPCRV. Not considered as donation under the tax code. It is subject to the rules and regulations of the COMELEC under the election code of the Philippines.

 Books for the City of Makati AND Land for Public Use. Although the donations are exempt, should be considered in the determination of “gross gifts”

 Gift subject to revocation is not a gift.

 Donation mortis causa is a donation subject to estate tax, not donor’s tax.

P6.6

a) March 1 = P2,000 b) May 30 = P18,000 c) June 30 = P90,000 d) July 31 = P0 e) September 30 = P447,200 Solution Gross Gifts P200,000

Dowry -  1 year after celebration

Net taxable gift P200,000

Donor’s Tax Due/ Payable – March 1 P2,000

Gross gift P500,000

Less: Mortgage assumed by the donee (100,000)

Add: Prior net gift 200,000

Taxable gift – May 30 P600,000

Donor’s Tax Due P20,000

Less: Tax paid (2,000)

Donor’s tax payable-May 30 P18,000

Donor’s tax payable-June 30 (P300,000 x 30%)

P90,000 Donor’s tax payable-July 31 (Bantay Bata) P0

September 30

Relative Stranger Total

Gross Gift P1,500,000 P1,500,000

Dowry (10,000)

-Mortgage assumed (300,000) (300,000)

Prior net gift 600,000

(24)

@30%

Tax Due P107,200 P360,000

Less: Tax Payments (20,000)

Tax Payable P87,200 360,000 P447,200

P6.7

1) January 15, 2012 = P32,000 2) April 1, 2012 = P6,000 3) December 25, 2012 = P0 4) March 30, 2013 = P30,000 5) May 25, 2013 = P0 Solution Gross Gifts-Jan. 1, 2014 P1,000,000 Less: Encumbrance (200,000) Taxable gift P800,000

Donor’s tax due/payable-Jan. 1, 2014 P32,000

Gross gift – April 1, 2014 P100,000

Add: Prior net gift 800,000

Taxable gift P900,000

Donor’s Tax Due P38,000

Less: Tax paid (32,000)

Donor’s tax payable-Apr. 1, 2014 P6,000

December 25, 2014 P0

March 30, 2015

P100,000 x 30% P30,000

The rule that gift of not more than P100,000 is exempt is applicable only to donations made to relatives. May 25, 2015 Gross gift P200,000 Deductions (200,000) Taxable gift P0 Tax Due P0

P6.8

1) October 8, 2015 = P9,800 2) November 4, 2015

= P1,200

June 6, 2015

Husband Wife Total

Gross Gift P240,000 P240,000

(25)

Mortgage assumed (2,000) (2,000)

Taxable gift P228,000 P228,000

Donor’s Tax Payable P3,120 P3,120 P6,240

October 8, 2015

Husband Wife Total

Gross Gift P30,000 P30,000

Dowry --- (10,000)

Prior Net Gift 228,000

@30

Donor’s Tax (Tax Table) P3,920

Tax Paid-June 6 (3,120)

Donor’s Tax Payable P9,0000 P800 P9,800

November 4, 2015

Husband Wife Total

Gross Gifts (strangers) P7,000 P7,000

Exempt (5,000) (5,000)

Prior Net Gift -

-Taxable gift P2,000 P2,000

@30 @30

Donor’s Tax Payable P600 P600 P1,200

P6.9 (1)P7,000 (2)P2,600 (3)P69,800 (4)P30,000

Feb. 15, 2015

Mr.Macariola Mrs.Macariola Total

Gross Gifts P200,000 P200,000

Dowry (beyond 1 year) -

Donor’s Tax Payable P1,000 P1,000 P2,000

March 30, 2015

Gross Gifts P200,000

P-Prior net gift 150,000

Donor’s Tax 8,000

Donor’s tax paid (1,000)

Donor’s Tax Payable P7,000 P7,000

June 1, 2015

Gross Gifts P- P100,000

Dowry - (10,000)

Prior net gift 150,000

Taxable gift 240,000

Donor’s Tax P3,600

Donor’s tax paid (1,000)

(26)

October 12, 2015

Mr.Macariola Mrs.Macariola Total Donation to Stranger Donation to a Relative Donation to a Relative Gross Gifts P200,000 P200,000 P400,000

Dowry (claimed June 1) - -

Prior net gift 350,000 240,000

Taxable gift 150,000 550,000 590,000

@30%

Donor’s Tax P17,000 P19,400

Donor’s tax paid (8,000) (3,600)

Donor’s Tax Payable P45,000 P9,000

Total P54,000 P15,800 P69,800

Gift Tax of Clifford P100k@30% = P30,000

P6.10 ---

(For Estate Tax)

TRUE OR FALSE

2. TRUE 8. TRUE 14. FALSE 20. FALSE 26. TRUE

3. FALSE 9. FALSE 15. FALSE 21. FALSE 27. FALSE

5. TRUE 11. TRUE 17. FALSE 23. FALSE 29. FALSE

6. TRUE 12. FALSE 18. FALSE 24. TRUE 30. FALSE

MULTIPLE CHOICE 1. A 11. D 21. C 31. C 41. B 2. A 12. B 22. A 32. D 42. A 3. C 13. C 23. D 33. A 43. A 4. C 14. D 24. C 34. B 44. C 5. B 15. B 25. C 35. D 45. B 6. D 16. D 26. D 36. C 46. B 7. D 17. A 27. C 37. B 47. D 8. D 18. B 28. D 38. D 48. D 9. D 19. C 29. B 39. D 49. A 10. C 20. D 30. B 40. A 50. C Supporting computation:

No. 18. If the sale is considered fictitious, the entire value at the date of sale is subject to donor’s tax. No. 21.

Letter “a” – onerous transfer

Letter “b” - To be considered valid donation, the renunciation should be specifically and categorically done in favor of identified heir(s) to the exclusion or disadvantage of the other co-heir(s) in the hereditary estate.

Letter “c” – gratuitous transfer, subject to donor’s tax No. 24.

Donation to Pedro Clara

Gross Gifts (2M/2) /2 P500,000 P500,000

Less Dowry (10,000)

(27)

No. 27.

DONEE Son D. in Law Gross Gifts (5M/2) P2,500,000

-Less Dowry (10,000)

-Net taxable gift P2,490,000

-No. 31-33. Husband Wife NG (3/1) 125,000 125,000 Tax Due (P25,000 x 2%) P500 P500 GG (5/1) P100,000 P100,000 Dowry (10,000) (10,000) PNG 3/1 125,000 125,000 NG P215,000 P215,000 Tax Due P2,600 P2,600 Tax Paid 3/1 (500) (500) D.T. Payable P2,100 P2,100 GG (7/1) 100,000 100,000 PNG 3/1 and 5/1 215,000 215,000 TNG P315,000 P315,000 Tax Due 6,600 6,600

Total Taxes Paid 7/1 P13,200 No. 38.

Tax Due P6,000

Tax Credit P4,500 vs. (200/300 x P6,000=P4,000) (4,000)

D.T.Pyable P2,000

CHAPTER 7 – BUSINESS TAXES

MULTIPLE CHOICE 1. A 7. B 13. D 19. C 25. A* 2. D 8. C 14. C 20. D 26. D 3. D 9. D 15. B 21. D 27. C** 4. D 10. C 16. C 22. A 28. A 5. D 11. A 17. A 23. D 29. A 6. C 12. C 18. D 24. C 30. C

(28)

**3% CCT is applicable only to domestic carriers transporting passengers by land, not by air or sea.

CHAPTER 8 – VALUE ADDED TAX

ERRATUM:

 Page 257, Question#2 of Illustration 18 Case B. Change the following Question2:

 Answer: P108,000 change to P372,000. INPUT VAT Transfer costs

(From BOC to the importer’s warehouse in Isabela)(P6,000,000 x 5%) x 12%

(300,000) (36,000)

 Page 258, Case B of Illustration 19 . Change the following data:

Freshko, a manufacturer of sardines has the following data for the month of June:

Sales, sardines, (net) P12,000,000 Change to P10,000,000

PROBLEM SOLVING

P8.1

Case A E Case B E Case C E Case D V

P8.2

Case A X Case E V Case I V

Case B X Case F X Case J X

Case C V Case G V (0%)

Case D V Case H V

P8.3

a) nil

b) Vat Payable = P134,400 x 3/28 = P14,400

c) Vat Payable = OV P201,600 x 3/28 – Input Vat P14,400 = P7,200 d) nil

P8.4

Cash Sales P660,800

Sales on account 246,400

Transactions deemed sale (22,400+16,800+19,040+8,960) 67,200

Total sales subject to vat P974,400

x 3/28

Output Vat P104,400

Less: Input vat (P291,200 x 3/28) (31,200)

Vat Payable P73,200

P8.5

(29)

Sales (P8M – 400,000) x 12% P912,000 Sales from consignment (March and Feb.)

(20+10) x P10,000 x 12%

36,000 Transactions deemed sales

January 8 consignment (20 x P10,000) x 12% 24,000

Goods withdrawn 6,000

Goods taken as payment to creditors 3,600 P981,600 INPUT VAT

Purchase of goods, supplies, freight/insurance) 82,080

Capital goods (P1,100,000 x 12%) / 48 mos. 2,750 (84,830)

VAT PAYABLE P896,770

P8.6

Sale of school supplies P1,680,000

Sale of gift items 1,008,000

Sales subject to output vat P2,688,000

x 3/28

Output Vat P288,000

Less:

 Input vat on purchases directly attributable to vatable sales (Purchase of school supplies and gift items)

P1,344,000 x 3/28 P144,000

 Input vat on purchases attributable to vatable and nonvatable sales (Purchase of computers)

P448,000 x 3/28 x (2,400/3,600)** P32,000  Purchase of office supplies used in vatable and

non-vatable transactions from non-vat registered suppliers nil (176,000)

Vat Payable P112,000

**Total Vatable Sales net of vat = P2,400,000 Non-vatable sales = P1,200,000

Total Sales, net (vatable and non-vatable) = P3,600,000

P8.7

Output Vat (P896,000 x 3/28) P96,000 Note:

Less: Input vat The input vat on capital goods is not amortized because the acquisition cost is not more than P1M.

 P224,000 x 3/28 (24,000)

 P112,000 x 3/28 x 80% (9,600) The ratio of vatable sales to total sales = 80%  P2,240 x 3/28 x 80% (192)

Vat Payable P62,208

P8.8

Assume amounts are vat inclusive

(a)

Total Input Vat (P374,000 + 69,848 + 154,000 + 55,000) x 3/28 = P69,948 (b)

Output vat (P330,000 + P274,996) x 3/28 P64,821 Less: Input vat (P374,000 + 69,848 + 154,000) x 3/28 (64,055)

(30)

Note: Sale to export oriented enterprise is considered export sale subject to 0% vat only if more than 70% of its annual production is actually exported

P8.9

(a) P28,800 (b) P12,600

Output Vat (P350,000 x 12%) P42,000

Less:

 Input vat on importation:

CIF (cost, insurance, freight) value P229,195 Charges/expenses incurred in claiming the goods:

Wharfage 1,540

Arrastre 2,295

Customs duty 4,090

Brokerage fee and documentary stamps 330

Facilitation expense

-Marine cargo insurance 2,550

Total P240,000

x 12% (28,800)

 Input vat on Freight from customs to warehouse (600)

Vat Payable P12,600

P8.10

(a)

1st_Quarter _{Output Vat (P3M x 12%)} _P360,000

INPUT VAT:

Purchases (P1.2M x 12%) (144,000) Purchase of machinery (P2.5M x 12%) / 36 x 3mos. (24,500) Unused input vat as of end of 2014 (125,000)

Vat Payable P66,500

(b)

2nd_Quarter _{Output Vat (4.8M x 12%)} _P576,000

Input Vat

Purchases (P3M x 12%) (360,000) Unused input vat on capital goods (P2.5M x 12%-24,500) (275,500)

Excess Input vat (P59,50

0)

P

8.11

Output vat (P336,000 x 12%) P40,320 Input vat:

On purchases (P112,000 x 3/28) (12,000) Transitional input vat:

Higher between 2% of beg. Invty vs. P10,000 (10,000)

Vat Payable P18,320

P8.12

(a) P3,400 (b) P80,000

(31)

Less: Input Vat

Presumptive I.V (P85,000 x 4%) (3,400) Purchased of olive oil (P67,200 x 3/28) (7,200) Purchased of can containers (P25,000 x 12%)) (3,000) Payments for paper labels (P12,000 x 12%) (1,440) Purchased of cardboard for boxes (P8,960 x 3/28) (960) Payments for hauling services nil

Vat Payable P80,000

P

8.13

Output vat (672,000 x 3/28) P72,000

Less: Input Vat

Pres. Input vat on purchased of fruits from farmers @ 4% (8,000) Purchased of bottles (P22,400 x 3/28) (2,400) Purchased of can containers (P50,000 x 12%) (6,000) Payments for paper labels (P5,600 x 3/28) (600) Purchased of cardboard for boxes (P3,360 x 3/28) (360) Payments for hauling services (P60,000 x 12%) (7,200)

Vat Payable P47,440

P

8.14

Subject to Value Added Tax

Hotel rooms (P1.8M x 12%) P216,000 Dining Hall:

Sale of food and refreshments (P2.2M x 12%) 264,000 Sale of wine, beer and liquor (P950,000 x 12%) 114,000 Other revenues (P700,000 x 12%) 84,000 Subject to Percentage Tax (Amusement Tax)

Disco:

Sale of food and refreshments (P1.6M x 18%) 288,000 Sale of wine, beer and liquor (P1.2M x 18%) 216,000

TOTAL BUSINESS TAXES P1,182,00

0

P

8.15

OUTPUT VAT based on collections

(15M + 10M + 5M) P3,600,000 INPUT VAT on purchases from:

Alpha (P12M – 1.2M) x 12% (1,296,000) Bravo (non-vat reg.) Charlie (P4M – 1M) x 12% (360,000) Delta (P2M x 12%) (240,000)

(32)

0

P

8.16

Output vat ((P4M – 2.5M) x 12% P180,000 Less: input vat (P800,000 x 12%) (96,000)

Vat Payable P84,000

P8.17

Ratio of Initial Payment over Selling Price: Lot A = 50/250 = 20% ; Installment Sale

Lot B = 70/200 = 35%; Deferred Sale; Treated as Cash Sale Lot C = 60/300 = 20%; Installment Sale

Nov. 2015 Dec. 2015 Lot A: P25,000 x 12%; P25,000 x 12% P3,000 P3,000 Lot B: P200,000 x 12% 24,000 -Lot C: P40,000 x 12%; P20,000 x 12% 4,800 2,400 Vat Payable P31,800 P5,400

P8.18

a) Output vat September 2015 = P3M x 12% = P360,000

The sale is a Deferred sale. Ratio of initial payments over SP is 30%. b) Output vat January 2016 = P0

P

8.19

Room charges P1,000,000

Laundry services 25,000

Food and beverages 1,500,000

Corkage 15,000

Handling charges for providing telephone, telex, cable or fax services

4,500

Cake shop sales 80,000

Total P2,624,500

Vat rate 12%

Output Vat for the month P314,940

TRUE OR FALSE SET A 1. T 6. F 11. F 16. T 21. F 2. F 7. F 12. F 17. F 22. F 3. F 8. F 13. F 18. F 23. T 4. T 9. T 14. F 19. T 24. F 5. T 10. T 15. F 20. T 25 F SET B 1. T 6. F 11. F 16. T 21. T 2. T 7. F 12. F 17. T 22. T 3. T 8. F 13. T 18. T 23. T 4. F 9. T 14. F 19. F 24. T 5. F 10. F 15. T 20. F 25 F MULTIPLE CHOICE 1. D 21. C 41. B 61. B 81. D 2. C 22. A 42. C 62. B 82. A 3. A 23. C 43. D 63. C 83. B

(33)

4. D 24. C 44. D 64. D 84. D 5. D 25. D 45. B 65. A 85. D 6. D 26. C 46. D 66. C 86. B 7. D 27. D 47. D 67. B 87. C 8. D 28. B 48. C 68. D 88. D 9. A 29. C 49. C 69. A 89. C 10. C 30. B 50. D 70. D 90. D 11. C 31. A 51. B 71. D 12. A 32. D 52. C 72. A 13. A 33. A 53. B 73. D 14. D 34. B 54. D 74. B 15. C 35. B 55. D 75. C 16. C 36. B 56. C 76. D 17. A 37. B 57. A 77. C 18. D 38. B 58. B 78. D 19. D 39. C 59. C 79. C 20. D 40. A 60. A 80. B Supporting Computations/explanations:

No. 12 “III” is exempt only if contribution per member is not more than P15,000. No. 20

Output Vat (P2,805,500 +P1,524,000) x 12% P519,540 Input vat (P1,102,200+P1,012,500) x 12% (253,746)

Vat Payable P265,780

No. 21

Output Vat, 3rd_{quarter (P150,000 x 12%)} _P18,000

Input vat, 3rd_{quarter (P120,000 x 12%)} _(14,400)

Deferred input vat – previous quarter (6,000) Vat Payable (Carry-over) (P2,400) No. 37 AR, July 1 P180,000 Billings, July-Sept. 850,000 AR, Sept. 30 (120,000) Collections P910,000 Output vat @ 12% 109,200

Input vat on purchases @ 12% (57,600)

Vat Payable P51,600

No. 38

Output vat (P5.5M x 12%) P660,000 Input vat on materials (180,000) Vat Payable September 2014 P480,000 No. 39

Output vat (P10M x 12%) P1,200,000 Input vat on materials (480,000) Input vat on capital goods

(P3Mx12%) /60 mos.

(36,000) Vat Payable June 30, 2014 P684,000 No. 41

(34)

Sales, shares held as inventory P5,000,000 Cos of shares, held as inventory (2,000,000)

Gross income 3,000,000

Vat rate 12%

Output vat P360,000

Les: Input vat

Supplies expense 12,000

Rent expense 24,000 (36,000)

Vat payable P324,000

No. 49

Domestic sales (P600,000 x 12%) P72,000 Add: Transaction deemed sales

Jan. 4 consignment (P200,000 x 12%) 24,000 Goods consumed on Fe. 27 (P50,000 x 12%) 6,000 Property dividends (P150,000 x 12%) 18,000

Total Output Vat P120,000

No. 66 & 67

Output vat (P592,480 x 3/28) P63,480

Less: Input Vat

Purchases of goods (P100,000 x 12%) P12,000 Purchases of services (P20,000 x 12%) 2,400

Transitional input vat 4,800 (19,200)

VAT Payable P44,280

No. 72

Output Vat for October 2014 = P3M x 12 = P360,000

 Ratio of Initial Pay’t over Gross S.P. = P900,000/P3,000,000 = 30%

 If initial payment is more than 25% of Selling Price, the sale is classified as Deferred Sale which is treated as Cash Sale. Therefore, the entire output vat is due on the month of sale.

No. 73

Output Vat for 2015 = P0; The entire output vat was paid in 2014 No. 74

Downpayment P112,000

1st_{installment payment} _112,000

Total (vat inclusive) 224,000

Less: VAT (P224,000 x 3/28) (24,000) Initial Payment (exclusive of vat) P200,000 Divide by contract Price (P1,120,000 x 3/28) 1,000,000 Ratio of Initial Payment over SP 20% Output vat for 2014 (P200,000 x 12%) P24,000 No. 75

VAT ON CASH SALE: P72,000

(ZV is higher than SP) (P600,000 x 12%)

VAT ON DEFERRED SALE: 36,000

(Ratio of Initial payment over SP  25% (Not qualifying under installment method) (Treated as cash sale; SP is higher than FMV)

(35)

[(P336,000/1.12) x 12%]

TOTAL OUTPUT VAT P108,000

No. 78 and 79 Output vat (P336,000 x 3/28) P36,000 Input vat (56,000 + 11,200) x 3/28 x 300/500 (4,320) Vat Payable P31,680 No. 80 OUTPUT VAT (P896,000 x 3/28) P96,000 INPUT VAT

Purchases of goods, vat business, vat included (P224,000 x 3/28)

(24,000) MIXED Transactions:

Purchases of supplies, for vat & non vat business

[(112,000 x 3/28) x (800,000/1,000,000)] (9,792) Purchase of depreciable asset, for use in vat and non vat business

[(P2,240 x 3/28) x (800,000/1,000,000)]

VAT PAYABLE P62,208

No. 81 and 82

OUTPUT VAT

Domestic sales (P330,000 + P274,996) x 3/28 P64,821

Export sales (zero rated) 0

INPUT VAT

Purchases of goods, supplies and services for domestic sales and for export (374,000

+ 69,848 + 154,000 + 55,000) x 3/28 (69,948) Vat Payable (P5,127) No. 83 Raw Materials (P560,000 x 3/28) x 400,000/1M P24,000 Supplies (P448,000 x 3/28) x 400,000/1M 19,200 Equipment (P300,000 x 12% x 400,000/1M) 14,400 INPUT VAT ATTRIBUTED TO EXPORT SALES P57,600

(36)

CHAPTER 9 – OTHER PERCENTAGE TAXES

TRUE OR FALSE-SET A

1. F 6. F 11. T 16. T

2. T 7. F 12. F 17. F (False, should be 20 days)

3. T 8. T 13. F 18. F 4. F 9. T 14. T 19. T 5. F 10. F 15. T 20. F TRUE OR FALSE-SET B 1. T 6. F 11. T 16. T 2. T 7. F 12. F 17. T 3. F 8. T 13. F 18. T 4. T 9. F 14. T 19. T 5. T 10. F 15. T 20. T MODIFIED IDENTIFICATION 1. A 6. C 11. C 16. A 21. C 2. A 7. A 12. A 17. C 22. A 3. E 8. A 13. A 18. C 23. A 4. C 9. C 14. A 19. C 24. A 5. C 10. C 15. A 20. C 25. B MULTIPLE CHOICE 1. C 21. --- 41. D 61. A 81. C 2. D 22. A 42. C 62. D 82. B 3. D 23. B 43. A 63. D 83. D 4. C 24. D 44. D 64. B 84. D 5. A 25. B 45. D 65. C 85. B 6. A 26. C 46. C 66. D 86. B 7. D 27. B 47. B 67. A 87. A 8. A 28. C 48. C 68. A 88. D 9. A 29. C 49. B 69. B 89. D 10. C 30. A 50. B 70. C** 90. D 11. D 31. B 51. A 71. A 12. A 32. D 52. C 72. C 13. B 33. D 53. C 73. C 14. C 34. D 54. C 74. C 15. D 35. D 55. A 75. C 16. B 36. A 56. A 76. D 17. B 37. A 57. --- 77. D 18. D 38. A 58. C 78. D 19. A 39. D 59. C 79. C 20. B 40. A 60. A 80. A Supporting Computations: No. 5 (P280,000 + P220,000) x 3% = P15,000

(37)

No. 6 (P50,000 + 100,000 – 75,000) x 3% = P2,250

No. 7

Gross receipts (refer to #6) P75,000

x vat rate 12% Output vat P9,000 Input vat (P11,200 x 3/28) (1,200) Vat Payable P7,800 No. 16 P6.5M x 12% = P780,000 No. 17 P660,00 x 3% = P19,800 No. 18 (P400,000 + P100,000) x 12% = P60,000 No. 22 P10M x 2.5% = P250,000 No. 22 P10M x 1.5% = P150,000 No. 26 (P10M x 40%) 3% = P120,000 No. 27 (P10M – P6M) X 30% = P1,800,000 No. 30 Subject to vat, not franchise tax No. 34 AR, beg. P600,000 Revenues (P4M + P1M) 5,000,000 AR, end (960,000) Gross receipts P4,640,000 Vat rate 12%

Business tax due P556,800

No. 35

Covered by the Franchise NOT Covered by the Franchise

AR, beg. P600,000 AR, beg.

P----Revenues 4,000,000 Revenues 1,000,000

AR, end (800,000) AR, end (160,000)

Gross receipts P3,800,000 Gross receipts P840,000

Franchise tax rate 2% Franchise tax rate 12%

Business tax due P76,000 Business tax due P100,800

Total Business Taxes P176,800 No. 42 P3M x 10% = P300,000 No. 34 Output vat (P5M x 12%) P600,000 Input Vat  P300,000 x 12% (36,000)  P800,000 x 12% x 5/8 (60,000) Vat Payable P504,000 No. 48 OPT% GRT

Interest income from lending activities from inst1uments with remaining terms of:

Five years and less 5,000,000 5% P250,000

(38)

Dividends & equity shares from subsidiaries 1,000,000 0% 0

Rental income 500,000 7% 35,000

Net trading gains 300,000 7% 21,000

Total Gross Receipts Tax P336,000

No. 49

OPT% GRT

Rentals from safety deposit boxes P880,000 7% P61,600

Net foreign exchange gains 220,000 7% 15,400

Net trading gains from trading of securities 660,000 7% 46,200

Trust fees 110,000 7% 7,700

Dividends from domestic corporations 30,000 0% 0

Other service fees 220,000 7% 15,400

Interest income from lending activities from inst1uments with remaining terms of:

Five years and less 700,000 5% 35,000

More than five years 800,000 1% 8,000

Total Gross Receipts Tax P189,300

No. 50

Interest income with maturity of less than 5 years (P500,000 x 5%) P25,000

Rentals (P500,000 x 7%) 35,000

Net trading loss = none; if net trading gain, tax is 7%

Gross receipt tax (GRT) P60,000

No. 51

Interest income with maturity of less than 5 years (P1M x 5%) P50,000

Rentals (P500,000 x 7%) 35,000

Net trading gain

[200,000 – (100,000 net trading loss previous month) x 7%] 7,000

Gross receipt tax (GRT) P92,000

No. 52

Interest withheld and paid (P100,000 x 5 years x 1%) P5,000 Adjusted amount of tax due to pretermination (P100,000 x 5 years x 5%) 25,000

Tax Payable P20,000 No. 55 P2M x 10% = P200,000 No. 56 [(P500,000 x 12%)-(300,000x12%)] = P24,000 No. 58 P2M x 2% = P40,000 No. 64 P7.5M x 18% = P1,350,000 No. 65 P5M x 18% = P900,000

No. 66 Not subject to OPT. Gross Receipts > 1,919,500, therefore, JC is subject to vat, not OPT No. 70**

WHICH OF THE FOLLOWING IS SUBJECT TO PERCENTAGE TAX?

“a” - not subject to percentage tax or any business tax…… Overseas communication into the Philippines. “b” and “d” - subject to vat

(39)

“c” – not world or oriental championship. Subject to 10% OPT

No. 75 P350,000 x .005 = P1,750

No. 77 [(P1,500,000 - P1,000,000) x 12] = P60,000

No. 79 (120,000 – 30,000) x ½ x P30 x 1% = P13,500; Ratio = 45/75 = 60%; IPO rate = 1% No. 80 (2,000 x P25 x 4% = P2,000; Ratio = 2/75 = 2.67%; IPO rate = 4%

No. 81 (6,000 x P40 x .005% = P1,200 PROBLEM SOLVING

Problem I:

Gross receipts-passenger operations (P8,000,000 x 3% CCT)

P240,000 Gross receipts cargo operations

(P5M x 75% x 12%vat)

450,000

Rentals (P2M x 12%vat) 240,000

Total business taxes P930,000

Problem II:

1) 3% OPT on vat exempt sales (GR<1,919,500 & non-vat registered) =P1.4M x 3% = P42,000 2) VAT = P1,400,000 x 12% = P168,000

Problem III:

1) Income tax due = P625,000

Subject to 2.5% GPB:  GR Passenger operations-Phils. P10,000,000  GR cargo operations-Phils. 6,000,000 Total 16,000,000 GPB rate 2.5% P400,000 Subject o NCIT (RR 15-2013):

 Demurrage, detention and Other fees 1,000,000  Expenses on demurrage fees (250,000) Income subject to NCIT 750,000

NCIT rate 30% 225,000

Total income tax due P625,000

EXCLUDED FROM GPB: RR15-2003 provides that demurrage fees, detention fees, and other charges relating to inbound and outbound cargoes are considered as income derived from sources “within” the Philippines subject to regular tax rates.

2) Income tax due = P545,000

Subject to 2% GPB (Under a tax treaty):

 GR Passenger operations-Phils. P10,000,000  GR cargo operations-Phils. 6,000,000

Total 16,000,000

GPB rate 2% P320,000

Subject o NCIT (RR 15-2013):

 Demurrage, detention and Other fees 1,000,000  Expenses on demurrage fees (250,000)

(40)

Income subject to NCIT 750,000

NCIT rate 30% 225,000

Total income tax due P545,000

3) Business tax due = 3% CCT on cargo operations originating in the Philippines

= 3% x P6M = P180,000

4) Income tax due = P3,225,000

 An offline carrier is not an international carrier. Assume therefore that the income provided were in the nature of commission income from international carriers.

 ***An offline carrier may be a domestic or resident foreign corporation. Since the original

problem pertains to an international carrier (resident foreign corporation), the offline carrier provided in the problem should be treated as a resident foreign corporation taxable only on its income from sources within the Philippines.

Solution:

Net income subject to NCIT:

 GR Passenger operations-Phils. P10,000,000  GR cargo operations-Phils. 6,000,000  Demurrage, detention and Other fees 1,000,000  Expenses-passenger operations-Phils. (4,000,000)  Expenses-cargo operations-Phils. (2,000,000)

 Expenses on demurrage fees (250,000) P10,750,000***

NCIT rate 30%

Income tax due P3,225,000

5) Business tax due (offline carrier) = P2,040,000

 GR from Passenger operations-Phils. P10,000,000  GR from cargo operations-Phils. 6,000,000

 Demurrage, detention and Other fees 1,000,000 P17,000,000

Vat rate 12%

Business tax due P2,040,000

Problem IV:

1. P0. Not subject to business tax but subject to a capital gains tax of P2,500.

[(5,000 sh. X P50) – P200,000 = P50,000 capital gain x 5%CGT = P2,500 CGT

2. P0. Not subject to business tax as well as income tax (CGT). The transaction resulted to a loss

amounting to P75,000, hence, not subject to CGT.

Purchase Price = P50/share; S.P.=P35/share; Loss = P15/share

3. Subject to P6,000 value added tax

[(5,000 sh. X P50) – P200,000 = P50,000 capital gain x 12% = P6,000

4. Subject to OPT (stock transaction tax) of P600 computed as follows:

P120,000 x .005 = P600

(41)

Problem V:

1. P3,000 OPT. ratio=10/35=28.5%; IPO rate= 2%; Tax due on=P150,000 x 2% = P3,000 2. P100 OPT. P20,000 x .005

Problem VI:

1. P1,053,000 OPT (amusement tax). P5,850,000 x 18%

2. P1,053,000 OPT. Subject only to a business tax due of 18% OPT. 3. P720,000 OPT P4,000,000 x 18% 4. P55,500 OPT. P1,850,000 x 3% 5. P108,000 Vat. (P1850,000 x 12%) – [P750,000 x 12% + (P224,000 x 3/28)] Problem VII: 1. P651,250 (P4M + 3.5M + 775,000) x 7% = P579,250 (P6M + 1.2M) x 1% = P72,000 2. P578,500 [(P2.8M + 3.3M + 825,000) + (325,000 – 150,000)] x 7% = P497,000 (P7.2M + 950,000) x 1% = P81,500